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Falcon Oil CEO Expects South Africa Shale Permit in Second Half

After unsuccessfully trying to have a response published by BLOOMBERG, TKAG posts it’s views on Falcon CEO’s SA wish list.

Here is the article by Bloomberg: TKAG response below.

By Nidaa Bakhsh and Mike CohenJul 11, 2014 10:52 AM GMT+0200

Falcon Oil & Gas Ltd. expects to be awarded a permit to start exploration at its shale plot in the Karoo basin in South Africa in the second half of the year after technical regulations are published.

“Our focus will be South Africa over the next 12 months,” Chief Executive Officer Philip O’Quigley said in an interview. The Dublin-based company, which signed a five-year exclusive co-operation agreement with Chevron Corp. in 2012, may sell a stake in the asset following the approval.

The Karoo basin in the southern part of the country may have 390 trillion cubic feet of technically recoverable gas, making it the world’s eighth-biggest shale-gas deposit, according to the U.S. EnergyInformation Administration. Falcon holds 7.5 million acres, according to a company presentation.

“The development of an upstream oil and gas industry will be a focus during the next five years,” Mineral Resources Minister Ngoako Ramatlhodi told a lawmakers committee in Cape Town on July 8. “We want to unlock investment as quickly as possible.”

South Africa has published draft regulations for the shale gas industry, which require drillers to meet American Petroleum Institute standards governing the type of equipment used and the disclosure of chemicals. Final rules are due to be issued in the next few months.

Earlier in the year, parliament approved separate legislation which will grant the government the right to take a 20 percent free stake in all new oil and gas projects and acquire a further unspecified share at an agreed price. President Jacob Zuma was asked to hold off on signing the law pending a review by a ministerial committee that will aim to ensure the law doesn’t discourage investment, Ramatlhodi said.

“We are delighted the government wants oil and shale gas exploration to start as soon as possible,” O’Quigley said.

Falcon has assets in the Beetaloo basin in Australia, where it’s planning to drill three wells this year, and in Hungary, where it’s looking for a company to further develop the license.

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Alex Devine, Indranil Ghosh

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TKAG RESPONSE:

An open letter to Mr. Philip O’Quigley –

Chief Executive Officer of Falcon Oil and Gas Ltd.

July 14 2014

Dear Mr. O’Quigley,

I have read in the press (Bloomberg July 11 2014) of your company’s anticipation that it will receive a permit from the South African government to commence exploration in the unique and sensitive Karoo basin ‘in the second half of the year’ and following the publishing of technical regulations.

TKAG has communicated with your venture partner, Chevron Corporation with regard to its involvement in this Karoo acreage, and in August of 2013 suggested that Chevron may wish to invest some time in reviewing the Environmental Management Plan (EMP) submitted by Falcon in 2011 to the Petroleum Agency of Southern Africa. TKAG and our alliance partners remain shocked and dismayed at the cavalier attitude displayed by Falcon and Chevron to the introduction of shale gas mining into a uniquely sensitive area in a water-scarce country and under the spectre of a plethora of unresolved issues standing between your company and a permit to commence exploration and possibly full production via fracking in South Africa.

Mr. O’Quigley, it is my obligation and duty to inform you that the issue of a permit to your company to commence exploration in South Africa for shale gas may be somewhat further away than you have publicly anticipated. I might add too that even should you have the permit to hand in the next five months, it may be far longer than that, before your company starts breaking ground in the Karoo, if ever. In essence, just because Falcon, Chevron et al are fracking elsewhere in the world doesn’t mean that you will succeed in bringing shale mining here.

TKAG and its alliance partners are not opposed to responsible and sustainable development of natural resources for the present and future benefit of South Africans. We will not submit to the imposition of a technology such as this under the current circumstances in South Africa – circumstances of which Falcon and Chevron are fully aware and which will militate against the commencement of this process in South Africa.

We invite you to send a representative to a press conference in Sandton, Johannesburg on July 22nd at which TKAG and its alliance partner, AfriForum will reveal a significant development in the shale gas debate in South Africa.

MEDIA ADVICE

17 July 2014

AfriForum and TKAG will reveal the contents and nature of an engagement with the State concerning shale gas mining (fracking) and specifically the recent announcements of President Jacob Zuma in this regard.

This will take place at a press conference at Sandton Convention Centre, 161 Maude Street Sandton, 2196 at 10h30 on Tuesday July 22nd. Press packs will be distributed after questions from the media and this will be followed by refreshments.

If you wish to attend the briefing please respond to research@treasurethekaroo.co.za with the words ‘Will attend 22 July’ in the subject line. If you require an embargoed copy of the press statement and supporting documents please write to research@treasurethekaroo.co.za.

For more detail or to request a copy of the release and supporting documents after the press conference is concluded, please contact Jeanie Le Roux on 072-959-1818 or research@treasurethekaroo.co.za

From New York to Nkandla, shale gas is indeed a game-changer

JONATHAN DEAL

15 JUL 2014 01:19 (SOUTH AFRICA)

Shale gas has been hailed as a game changer worldwide, but many of the numbers being crunched are outdated – and the reality is a little more sobering. It’s worth picking up on US shale gas hype and bringing it down to earth in the Karoo.

Since 2011, there have been some incredible statements from oil and gas executives, but the uncontested winner must come from Chris Faulkner: “There is enough oil and gas underground (in America) to supply America for an almost endless amount of time.”

Shale gas has been hailed as a game changer worldwide, but many of the numbers being crunched are outdated – and the reality is a little more sobering. It’s worth picking up on US shale gas hype and bringing it down to earth in the Karoo.

Since 2011, there have been some incredible statements from oil and gas executives, but the uncontested winner must come from Chris Faulkner: “There is enough oil and gas underground (in America) to supply America for an almost endless amount of time.”

I met Faulkner, the soft-spoken CEO of Breitling Energy, when he presented on shale gas at a conference in Johannesburg. He was smartly dressed, self-assured and articulate. What I read in his interview with RIGZONE caused my jaw to drop open. RIGZONE’S Gene Lockard quizzed Faulkner on the recent decision by the New York Court of Appeals, in which the Court upheld lower court rulings, which allow municipalities to apply zoning ordinances to ban the practice of fracking within their borders.

Faulkner’s clanger, though, is nothing to do with the court decision but rather a statement that appeared later in the text. Responding to a question about how the ruling will affect drilling activity in New York State, Faulkner guesses that ‘drillers will go where the oil and gas is,” and elaborates: “As we’ve all seen, there’s enough oil and gas underground to supply America for an almost endless amount of time…”

Let’s rewind that. “Enough oil and gas underground to supply America for an almost endless amount of time.”

Consider President Obama on 25 Jan 2012: “We have a supply of natural gas that can last America nearly 100 years, and my administration will take every possible action to safely develop this energy.” President Obama has no doubt been misinformed by:

Aubrey McClendon, ex CEO of Chesapeake Energy, on CBS News’ 60 Minutes November 14 2010: “In the last few years we have discovered the equivalent of two Saudi Arabias of oil in the form of natural gas in the United States. Not one, but two.” Asked by talk show host Stahl: “We have twice as much natural gas in this country, is that what you are saying, than they have oil in Saudi Arabia?” McClendon responded, “I am trying very clearly to say exactly that.” To place McClendon’s Saudi Arabia claim in perspective, in 2011, the annual BP Statistical review of Saudi Arabia was 264.5 billion barrels of proven oil reserves as at the end of 2010 – when McClendon made his claim. This is the equivalent of 1587 tcf. of natural gas multiplied by two (as in two Saudi Arabias) and thus equals 3,174 tcf or enough to power the US at its current rate of consumption for approximately 125 years.

Also weighing in is the US Energy Information Administration (EIA). This body, largely responsible to US Congress for Energy forecasts, reduced Marcellus shale figures in Pennsylvania, in August 2011 from 410tcf to 84tcf after estimating reserves at 2tcf in 2002. During this time Professors Timothy Considine and Robert Watson of Penn State University, in what became known as the Penn State Report 2009 stated that “While reserve estimates… are somewhat uncertain at this early stage, estimates of recoverable reserves of at least 489 trillion cubic feet seem increasingly reasonable”.

The same report also predicted $35 billion in added value and almost 175,000 jobs in 2020. And well-known oil and gas advocate Daniel Yergin – Cambridge Energy Research Associates – predicted that world oil and natural gas liquids capacity could increase by as much as 25% by 2015, with Robert W Esser, director of CERA, asserting: “Peak Oil theory is garbage as far as we’re concerned.” Yergin in 2011 wrote in an article published by the Wall Street Journal that there is more than a 100-year supply of natural gas. It was also reported February 2014 by Moneynews that Yergin claims: “The emergence of shale gas and tight oil in the US demonstrates… how innovation can change the balance of global economic and political power.”

Reviewing the Zuma administration’s Shell-fed shale gas hype, I have to agree. Academic support for the shale gas boom was not far behind, although with a 50% caution, in the words of Professor Terry Engelder (Penn State University) who reported in the Fort Worth Basin Oil and Gas Journal (August 2009), that based on his own calculation, [there was]a 50% probability that the Marcellus would ultimately yield 489tcf.

The real numbers, especially through 2011-2013, reflect a markedly different trend. Between 2006 and 2011, Chesapeake sold whole or partial shale play interests for $17.9 billion, with the bulk of the sales being made to foreign buyers: Total, BP, Statoil and BHP Billiton. As reported later in this document, on those purchases BHP took a $2.84 billion write down, BP took a $2.1 billion write down, and in October 2013 Shell announced that they were selling up in Colorado and Texas, with outgoing Shell CEO Peter Voser telling Financial Times he regretted Shell’s huge bet on US Shale. And as a further example of industry exaggeration, shortly before selling Fayettville shale assets to BHP Billiton in Feb 2011 for $4.5 billion, Chesapeake claimed that EUR (estimated ultimate recovery per well) for Fayettville was up to 2.6bcf from 2.4 Bcf. But this claim is belied by an analysis of 4,258 wells in the Fayettville shale from January 2005 to July 2012 showing that only 1,116 (26%) have produced greater than one Bcf and only 86 wells (2%) have produced greater than two Bcf. This puts average cumulative production per well over 887 wells for Chesapeake/BHP in Fayettville at 719 MMcf – that’s 72.35% in the wrong direction. It’s little wonder that less than 18 months after acquiring Chesapeake’s Fayettville assets, BHP wrote off $2.84 billion – more than a 50% reduction from the purchase price. Is this what South Africa’s Public Investment Corporation (PIC’s) Dan Matlila is so keen to invest state pensions in? Matlila told Reuters in February 2014 that “[s]hale gas will be a game changer here and we will be the biggest investor.”

And in 2011, Cape Town, South Africa, the US hype was embraced by Professor Brian Kantor, at the time the chief economist and strategist for Investec Bank SA.Kantor, working on figures for South Africa of 485tcf (just in the Karoo basin), said: “Were this potential output of natural gas estimated as recoverable by the US EIA, to be captured from the Karoo shale, it would be very large potatoes indeed. It would be the equivalent to about 402 years of SA consumption of oil at current rates: 365*550 00 = 202.575m per annum; (83000mb/202.575mbpa) = 402 years.”

The 485tcf has subsequently been reduced to 390tcf, and now by South African scientists to just 40tcf. Alarmingly, the Econometrix report of Shell SA, at the time thoroughly trumpeted around South Africa by Shell and based on a percentage of 485tcf, has not been reduced 13 times. In 2013 Treasure Karoo Action Group published a peer-reviewed analysis of the Econometrix report by Professor Martin De Witt, which concluded, inter alia, that the [Econometrix] report falls short in many areas. Nor has Professor Kantor publicly reduced his 2011 forecast of 402 years of energy for SA. And in May 2014, shale proponents were shocked by the EIA revelation that it had in one fell swoop reduced the recoverable Californian Monterey shale reserves by 96%. This shale play had previously been described by energy analysts and shale proponents like Nick Greely in the UK as “… the star of the North American show … California shale will… reinvigorate the Golden State’s economy over the next two to three years.”

Meanwhile in South Africa, President Jacob Zuma, presumably referencing the same sources as Mr. Faulkner and the infamous Shell/Econometrix report, continues to label shale gas as a game changer for South Africa, even linking it to much-needed jobs. Mr. Zuma’s view on shale gas, as with many of his Cabinet Ministers, is just as outdated as the USGS estimates of 485tcf. In my view, our president is betting on a resource using figures that have been reduced 13 times. His stoic refusal to acknowledge global resistance to shale gas mining and the uncounted costs of shale mining to the environment and the taxpayer of this country, make it seem that he wants any news as long as its good. Shale gas may well be a game-changer, but there is a winner and a loser in every game – and I wonder if our president is backing the winning team. DM

An online article July 8, by oil and gas industry mouthpiece RIGZONE proclaims “SOUTH AFRICA EDGES CLOSER TO KAROO SHALE GAS DEVELOPMENT” Peppered with inaccuracies, and drawing on phrases like ‘rolling blackouts in South Africa in May of this year’, the article regurgitates the industry speculation that we have heard in this country since January 2011. Here is the article. My reply to RIGZONEon their own online comment section may not be published, and is set out underneath the RIGZONE article.

I believe that the article is poorly researched, and as one would expect biased towards the oil and gas industry that supports your publication. As proof, I mention just one point that jumps out of the text. ‘300 000 to 700 000 jobs over 25 years. (485tcf)’ Anyone who has done their homework knows that South African scientists long ago reduced that figure from 485 to 40tcf – so any estimates based on 485 are irrelevant – much like the industry hype and speculation over Monterey. No Sir, those backing shale mining in SA may feel that it is edging closer, but actually the news on shale gas globally is not good and is building a strong body of evidence against SA moving ahead under the current circumstances. Jonathan Deal, CEO, Treasure Karoo Action Group, South Africa.

Odds mounting against fracking in South Africa and elsewhere

This article is the first in a series of timelines detailing global developments in and around shale gas mining – the links will address media reports and occurrences in 2014. Separate and dynamic posts on 2013, 2012 and 2011 will follow. The current year will be updated regularly. Comment is welcomed, and submissions considered for addition to the table. AFTER VIEWING A LINK, USE YOUR BROWSER ‘BACK TO’ OPTION TO RETURN TO THIS POST

Read the opening statement of SA law firm Webber Wentzel’s Pulane Kingston in a May 30 debate on national radio in South Africa. Kingston is a partner in the Oil and Gas practice of the firm. The debate motion (hosted jointly by WWF South Africa and SAFM – a national radio station), pitted two teams of ‘experts’ against one another. The formal motion was ‘FRACKING THREATENS OUR WATER RESOURCES’, and debaters were afforded 2 minutes for an opening statement.

Referencing ’emotional and alarmist statements’ [about shale gas] as something to avoid, Kingston embarked on an opening statement, that apart from failing even once to obliquely reference the debate motion, was materially inaccurate and curiously muddled for a legal professional and so-called expert on fracking. Basing her argument on obsolete figures of speculative shale gas reserves already slashed by South African scientists and referencing industry commissioned (Royal Dutch Shell) reports based on shale gas reserves 13 times greater than current best estimates, Kingston was apparently so taken with her calculation of 310 years of energy for South Africa out of speculated Karoo reserves that the issue of water, and the motion of the debate against which she was expected to argue, appeared to evaporate like a drop of water on a hot Karoo tin roof. A sober review of Kingston’s 310 year claim could be said by those with a more pragmatic approach to the speculative land of milk and honey, to earn first place in the joint categories of ’emotional and alarmist’. I have to conclude that if this position reflects the understanding and expertise of shale gas mining to be found in the top legal minds of South Africa, it demonstrates that the country is in a dire situation with regard to understanding the issues intrinsic to shale gas mining. A rigorous and structured follow-up debate with Kingston sans radio adverts, news reports and audience participation will be welcomed.

“Shale gas presents an incredible opportunity with tremendous economic benefits overall. In the context of the shale gas reserves total which are estimated at 390 tcfs, there are two points that I would like to make. The first is that in terms of energy security it is estimated that the reserves that are available can meet our energy requirements for the next 310 years. That is significant. Secondly, in the context of job creation, they would create at least 850,000 jobs according to a report by Econometrix. The second point I would like to make is that as responsible citizens in this country, we need to really move away from emotion and alarmist statements that ultimately detract from our ability to focus on the risks in a sober minded manner and to ensure that those risks are appropriately attended. It is incumbent of all of us to do this in order that we end up at a place that is the correct conclusion. To my mind the fundamental issue here lies in the government creating a regulating framework that ensures the success of fracking in the Karoo which is done in a sustainable and responsible manner. The definition here for me as well is that monitoring shale gas fracking is ultimately what is important and should be what we are focusing on at all times.”